Ghanaian government uses half of tax revenue to settle debts

Ghana’s Finance Minister, Ken Ofori-Atta last week presented the 2019 mid-year budget to the country’s Parliament.

Ken Ofori Atta, Finance Minister

Mr Ofori-Atta requested to spend an additional GHC6.4 billion in the supplementary budget. GHC6.1 billion of the requested amount will be used to pay interest on the government’s debt.

How much does Ghana owe?

Ghana’s public debt reached $37,787,767,500 (GHC203.9 billion) in June 2019. The cost of servicing this debt seems to be preventing the government from spending on the needed capital infrastructure.

What does this mean to tax payers?

The Finance Minister’s request shows that the government’s debt service expenditure in relation to government revenue to about 51 percent.

This means that more than half of the tax revenue the country collects will be used to service loans. Therefore, for every cedi the Ghana Revenue Authority will collect as taxes, more than 51 pesewas will be used to pay interest on loans and other debts.

This means the government will have to resort to the capital market to raise funds to finance its capital expenditure as well as to spend on its goods and services.

History

Historically, debt service expenditure, comprising interest and amortization payments, absorbed 26.8% of total revenue and grants in 2013, but this increased rapidly to 47.9% in 2016.

The ratio then fell to 44.5% in 2017 and to 44.3% in 2018. However, given the revisions to spending in the mid-year budget, the ratio is set to rise sharply to 51.2% in 2019 — close to double the 2013 ratio.

Speaking at the Institute for Fiscal Studies’ 2019 mid-year budget review, Leslie Dwight Mensah, an economist with the Institute stated that the burden of debt service expenditure on the government’s finances is very high and increasing.

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